Summing Up The Week

The promises of a potential stimulus package before the December recess of Congress sent the markets higher this week in spite of numerous negative news events ranging from unthinkable death and hospitalization counts from COVID-19 to a weakening job market and increasing unemployment.

And, yet, the markets rise higher.

Let’s take a look at the news that moved the markets this week…

Market News

Fed calls economic outlook “extraordinarily uncertain”

On Monday, Federal Reserve Chairman Jerome Powell stressed that lending programs are of primary importance, calling the economic outlook “extraordinarily uncertain,” reported CNBC.

Powell stressed the importance of the Fed’s lending programs, several of which will end December 31. While Treasury Secretary Steven Mnuchin said those funds would be better spent elsewhere, Powell said that the outlook for the economy has become “extraordinarily uncertain.”

The programs in question helped the Fed buy corporate bonds, provided financing to small- and medium-sized businesses throught he Main Street lending facility, and channeled money to state and local governments.

Bipartisans unveil $900B stimulus package, McConnell passes

On Tuesday, a group of bipartisan lawmakers offered a new $908 billion stimulus plan in an effort to break the legislative stalemate as the coronavirus surges throughout the country, reported CNBC.

The proposal includes $288 billion in small business aid including the Paycheck Protection Program loans as well as state and local governmental relief, supplemental unemployment, vaccine distribution, contact tracing, transportation, rental assistance, child care and more.

The propose does not include another direct payment to most Americans, however. It does include temporary federal protection from coronavirus-related lawsuits.

Neither the House of Representatives nor the Senate have assured that they will vote on the plan.

Later on Tuesday, Senate Majority Leader Mitch McConnell rejected the plan, saying he wants to pass what he called a “targeted relief bill” this year, reported CNBC. “We don’t have time to waste time,” he told reporters in response to the roughly $908 billion plan put together by bipartisan members of the GOP-controlled Senate and Democratic-held House. 

Private payroll numbers show decline month-over-month

On Wednesday, ADP reported that private payrolls grew by 307,000 in November, a decline from October’s 404,000, and significantly under the Dow Jones estimate of 475,000, reported CNBC.

The data may demonstrate what many economists, including Fed Chair Jerome Powell, have feared – that the economy is much weaker than previously thought. However, the real numbers would come in later in the week when the Labor Department revealed its own job report including new jobless claims.

Pelosi and Schumer back plan, McConnell may be on board

Despite Mitch McConnell’s refusal to consider the $900 billion bipartisan plan submitted on Tuesday, House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer urged McConnell to use the $908 billion plan as the basis for relief talks, CNBC reported on Wednesday.

In a joint statement, Schumer and Pelosi said, “While we made a new offer to Leader McConnell and Leader McCarthy on Monday, in the spirit of compromise we believe the bipartisan framework introduced by Senators yesterday should be used as the basis for immediate bipartisan, bicameral negotiations.”

Pelosi and Treasury Secretary Steven Mnuchin spoke Tuesday for the first time since late October. Mnuchin said he’d review both the bipartisan proposal and an unspecified offer made by top Democrats to GOP leaders on Monday.

The S&P 500 closed at a record high Wednesday as a result of the positive news of the potential of a desperately needed stimulus plan prior to the winter recess.

On Thursday, McConnell said a Covid stimulus compromise is within reach, reported CNBC after he and Pelosi spoke for the first time since the 2020 election. The congressional leaders discussed their “shared commitment to completing an omnibus [spending bill] and COVID relief as soon as possible,” said Drew Hammill, Pelosi spokesman, in a tweet. 

U.S. adds 245K jobs in November vs 440K expected

On Friday, the Labor Department released a disappointing jobs report showing that the economy added only 245,000 jobs in November, well below Wall Street estimates of 440,000, reported CNBC. Despite an obviously negative news report, the markets opened higher.

Why?

Analysts believe that the negative news about the economy will spur Democrats and Republicans to work together to pass a stimulus bill before the December recess, pushing much-needed financial aid to Americans without jobs.

However, in my experience, when the market continually goes up on negative news events leading to a potentially positive catalyst, the catalyst will be a “sell-the-news” event when many market speculators will take profits, regardless of whether the catalyst proves positive or negative.

In other words, if Congress passes a stimulus bill before the December recess, the market may sell off. If Congress does not pass a stimulus bill before the December recess, the market may sell off huge.

Next Week’s Gameplan

The underlying message lately has been the same – the professionals are confounded by how the markets continue to make new all-time highs, claiming that a substantial pullback is due. All the while, retail investors who haven’t previously been the space, are voraciously buying up any dip with amazing appetites.

For me, this price action is all too familiar. Whenever the markets get to a point where they feel like they’ll never go down and a feeling of FOMO builds up in my chest making me feel like I need to jump in, that means we’re in for it.

The thing about giant pullbacks is that the cause is always unseen. This logic actually makes perfect sense – if any investor could see the ominous clouds on the horizon, they would pull out of the markets and then everyone would eventually follow.

What causes substantial pullbacks is the Black Swan Event. This year, it was obviously the novel coronavirus COVID-19. Next year… who knows? Perhaps the giant snowball of debt piled on the government’s balance sheets? Maybe all the evictions and foreclosures after the moratoriums end?

At any rate, we’re definitely in a Seller’s Market for almost all of my positions until we see a turn of favor.

This Week in Play

Stay tuned for this week’s episodes of my two portfolios Investments in Play and Speculation in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

Bitcoin kicked off December with a bang, bouncing back from its recent -17% pullback to hit a new all-time high at $19,915.14 on Tuesday, December 1. Granted, it’s only $23.15 higher than its previous $19,891.99 all-time high set nearly three years ago on December 17, 2017.

After hitting the new high, Bitcoin pulled back just over -9% before settling into price consolidation as Bulls and Bears alike try to figure out the crypto’s next move. 

The crazy volatility this week has left us with a weekly low of $18,109.00 and a monthly low of $16,200.00. 

Does anyone else notice how weird it is that a lot of the highs and lows are right at the .00 dollar value? Me thinks the High-Frequency Robot Traders (i.e. “bots”) are having their way with this market…

The Bullish Case

Bulls point to Bitcoin’s new all-time high – however meager – as a clear indication that the crypto is setting up to break free from the past three-year range and make much, much highs from here. Some Bulls believe the crypto will hit highs nearly $50,000 or higher by the end of 2021 based on past trends of growth in the space.

The Bearish Case

Bears believe that the bullish momentum is slowing. While Bitcoin did, indeed, make a new all-time high, the lack of additional follow-through leaves many Bears thinking that the high might be in for this Bull rally and a historical pullback anywhere up to 40% or lower is in store before the crypto will see true forward momentum.

Bitcoin Gameplan

Current Allocation: 1.087% (Unchanged since last week)
Current Per-Coin Price: $17,528.26 (Unchanged since last week)
Current Profit/Loss Status: +8.826% (+13.551% since last week)

Bitcoin doesn’t appear to be acting like it has in the past. I say this fully knowing that one of the biggest pitfalls any trader or investor can fall into is the concept that “this time it’s different.”

Say that on a trading floor and you will get smacked on the back of the head repeatedly by any nearby professional hearing you…

That being said, this time certainly doesn’t feel the same even as the volatility seems extreme, it’s nothing compared to what Bitcoin has seen the last times it hit new all-time highs. Accordingly, I’m actually raising some of my price targets to try and accumulate more in case it pulls back before its next move higher.

And, of course, I’m using small quantities and a plan that incorporates a move below $3,000 just in case time is exactly the same as all the other times that felt like they were different…

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here’s my plan of buying quantities and prices:

0.342% @ $16,779
0.342% @ $16,394
0.342% @ $15,456
0.342% @ $14,488
0.342% @ $14,201
0.342% @ $13,959
0.342% @ $12,963
0.342% @ $12,288
0.906% @ $11,513
2.134% @ $10,238

Why the differing quantities at each level instead of a flat percentage?

Rather than buying an equal percentage, I change my buying quantity at each stage as a reflection of how likely Bitcoin could bottom and rebound from that stage. Rather than increasing my quantity on the way down, I’m used a fixed amount of money, so I’m basing how much I buy by how likely I think Bitcoin will drop to a certain level. In this case, I don’t think it’s likely Bitcoin will be able to break its $3128 low, so my quantities under that price point are less to account for the chances it will get to them.

No price target is unrealistic in the cryptocurrency space – Bullish or Bearish.

While traditional stock market investors and traders may think the price targets in the cryptocurrency space are outlandish due to the incredible spread (sometimes a drop of near -90% or a gain of up to +1000% or more), Bitcoin has demonstrated that, more than any speculative asset, its price is capable of doing anything.

Here are just a few recent price movements over the past couple of years:

• Bitcoin rose +2,707% from its January 2017 low of $734.64 to make an all-time high of $19,891.99 in December of the same year.
• Then, Bitcoin crashed nearly -85% from its high to a December 2018 low of $3128.89.
  In the first half of 2019, Bitcoin rallied +343% to $13,868.44.
• From June 2019, Bitcoin dropped -54% to a low of $6430.00 in December 2019.
• From December 2019’s low, Bitcoin rallied +64% to $10,522.51 in February 2020.
• In March 2020, Bitcoin crashed nearly -63% to a low of $3858.00, mostly in 24 hours.
• From March 2020, Bitcoin rallied +416% to $19,915.14 in December 2020.

Where will Bitcoin go from here? Truly, anything is possible…

What if Bitcoin’s headed to zero?

The only reason I speculate in the cryptocurrency space is I truly believe Bitcoin isn’t headed to zero.

I am prepared for that possibility, however, by knowing I could potentially lose all of the capital I’ve allocated to this speculative investment. Professional advisers recommend speculating with no more than 5% of an investor’s overall assets. Personally, I’ve allocated less than 2% of my assets to speculating in crypto.

I feel that anyone who doesn’t fully believe in the long-term viability of cryptocurrency would be better served not speculating in the space.

On a good day, this asset class isn’t suitable for those with weak stomachs. On volatile days, the sector can induce nausea in the most iron-willed speculator. If a speculator isn’t confident in the space, the moves will cause mistakes to be made.

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.